The Government of Canada has introduced new measures to help more Canadians enter the housing market. Bill Morneau, the Minister of Finance has announced changes to the benchmark rate used to determine the minimum qualifying rate for insured mortgages also known as the “stress test.” These changes will come into effect on April 6, 2020.
The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. Federal financial agencies have concluded the minimum qualifying rate should be more dynamic to better reflect the evolution of market conditions.
They have stated mortgage standards are working to ensure home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses. This adjustment to the stress test will allow it to be more representative of mortgage rates offered by lenders and more responsive to market conditions. The Office of the Superintendent of Financial Institutions (OSFI), an independent banking regulator also announced it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages. When a borrower has a down payment of 20% or more of the sale price, insurance is not required. The minimum qualifying rate for uninsured mortgages is set by OSFI. When a borrower has less than 20% down, lenders are required to obtain government-backed mortgage insurance. The mortgages must comply with the insured mortgage rules set by the Minister of Finance, including the insured minimum qualifying rate.
Overall, these are positive steps for first time home buyers and for those who are already homeowners. These more realistic regulations will ensure more buyers are able to enter the housing market, which will ensure stability and future growth. This combined with the implementation of the First-Time Home Buyer Incentive and the increased withdrawal limit from the Registered Retirement Savings Plan to $35,000 will further support first time home buyers. These important steps combined with strong economic indicators will ensure a strong market beyond 2020.